David Lorenz

Sustainable property investment: valuing sustainable buildings through property performance assessment

How can the property and construction industry meet the current and forthcoming challenges posed by sustainable development? The perception of property as a commodity is changing to emphasize building characteristics and performance as major determinants of a propertys worth and market value, thereby requiring new ways of assessing worth and value. Commercial property valuation represents a major mechanism that could allow environmental and social considerations to be more closely aligned with economic return. In particular, the rationale and initial considerations are explored for the incorporation of environmental and social issues into valuation theory and practice. A system that allows for the description, measurement and assessment of various aspects of building performance is conceptualized. Possible sustainability key performance indicators are identified and the basic principles for assessing performance along the life cycle of buildings are explained. It is argued that the environmental and building research community has a central role in determining a standardization of terminology and improving the exchange of ideas between financial and environmental research disciplines. Then, the simultaneous consideration of economic, environmental and social issues can provide a more profound knowledge about property characteristics and associated performance. This will create a more robust assessment approach and lead to greater reliability of assessment results. Finally, the opportunities afforded by the synergies between sustainable design and risk management are identified and implications for property risk assessment for lending and insurance purposes are highlighted.

Addressing risk and uncertainty in property valuations: A viewpoint from Germany

Purpose – The purpose of this paper is to propose and discuss practical approaches on how to address risk and uncertainty within valuation reports, particularly when there is only insufficient comparable transaction evidence available.Design/methodology/approach – A four stage approach to property valuation is proposed that can be particularly useful if there is insufficient comparable transaction evidence available: Identifying, measuring and expressing risk by making use of property rating approaches. Transforming risk into risk premia for calculating the yield on a risk free basis by partially making use of models of risk and return usually applied in finance. Simulating risk premia (since there is great deal of uncertainty involved in determining these premia) by making use of a statistical method commonly referred to as Monte Carlo Simulation. Using the derived yields probability distribution in combination with further probability distributions for other valuation input variables (e.g. market rent)...

Exploring the relationship between the sustainability of construction and market value: Theoretical basics and initial empirical results from the residential property sector

Purpose – The basic purpose of this paper is to explore the relationship between the sustainability of construction on the one hand and market value, worth and property investment performance on the other hand. This paper aims to analyse price movements and price differences caused by different property characteristics.Design/methodology/approach – Based on the estimated log‐linear hedonic regression model, a hedonic price index is calculated. Price movements subject to different property characteristics are examined by constructing various conditional hedonic price indexes.Findings – The results reveal that, high‐quality flats or flats within preferred locations clearly outperform their competitors in terms of price stability during an overall market downturn. However, it is also shown that contemporary building descriptions or specifications of transactions within property databases are not yet sufficient and need to be widened to meet forthcoming challenges. Therefore, an “integrated building performan...

Sustainable construction in Central/Eastern Europe: implications from SB04 in Warsaw

The outcomes and implications from the regional Central and Eastern European Conference on Sustainable Building (SB04) are considered in conjunction with the current state of sustainable construction within Central/Eastern European countries. Central/Eastern European countries are coping with shifting and reorganizing economic, political and legal systems within the wider framework set by the European Union, which are now shaping the course of future development. At the same time, the whole region is under intense development for various reasons (e.g. international investors increasingly recognize the attractiveness and opportunities of the regions commercial property markets and a huge backlog demand for new housing facilities leads to intense construction activity within the housing sector). It is argued that, on the one hand, significant opportunities exist for implementing the principles of sustainable development in the property and construction sector. However, on the other hand, needs-driven construction activity might focus on quantitative delivery without taking into account sustainability issues as well as the long-term consequences of construction projects. This can lead to aberrations that are very difficult to remediate. Appropriate actions and future strategies (developed within the scope of SB04) are identified to help promote and foster sustainable development within the Central/Eastern European region. A multifaceted approach to sustainable construction is required for use by policy-makers, practitioners and civil society. The description and assessment of interactions between different aspects of sustainable development in property in construction is the prime research priority (for both, the older Western European countries and the new Central and Eastern European Member States).

Shaping the future: The impacts of evolving international accounting standards on valuation practice in the UK and Germany

The continued globalisation of investment has led to revisions in various regulatory systems and to the development of internationally applicable standards and codes of practice. As a significant asset of many businesses, real estate values are a key element of the financial detail included in annual reports. Accordingly, valuation standards have evolved to align with the requirements of accounting and banking sectors. The international demand for standardised regulatory systems and processes has many benefits and it is of critical importance for valuers not only to be fully aware of the changes in the various influencing regulatory systems but to recognise their changed responsibilities, particularly if third parties are likely to rely upon their valuations.

Risk and return in European property markets: an empirical investigation

Purpose – The purpose of this paper is to explore capital gains, income, and total returns in various property markets in Europe. In a comparative study the nature of returns for different commercial and residential properties is investigated. Hereby, total returns, income returns, and capital growth are distinguished. The paper further presents an analysis of the risk‐return relationship of the different markets and investigates the interactions between property markets, other local financial markets, and macroeconomic variables.Design/methodology/approach – Focusing on the risk‐return relationship of the different asset classes and countries, the Sharpe ratio is used as a risk‐adjusted performance measure to investigate the European markets. Using a simple linear regression model, a comparison of the European commercial property markets with respect to their returns and risk are provided. Finally, a capital asset pricing model (CAPM) and factor models based on arbitrage pricing theory (APT) are used in ...

Reflecting sustainability in property valuation – a progress report

Purpose The purpose of this paper is to report on the findings of a survey conducted by the Royal Institution of Chartered Surveyors (RICS) to discuss the extent to which qualified valuers have adapted their valuation practices in the light of guidance published by RICS in respect of sustainability and commercial property. The findings are placed within a wider debate between assessment of market value and investment value (worth). Design/methodology/approach The paper is a theoretical discussion incorporating the results from an empirical survey of valuation practitioners. Findings The paper reveals that guidance published by RICS in 2011 has achieved limited, but variable, impact in terms of impacting on valuation practice due to a combination of factors including lack of knowledge of the guidance, non-requirement of clients to request sustainability reporting within valuations, paucity of data. It found that where worth (investment value) is required, sustainability factors are more likely to impact the calculation than where an estimate of market value is prepared. The paper identifies theoretical problems and practical barriers hindering an integration of sustainability aspects into valuation practice. Research limitations/implications The empirical work was conducted prior to the embedding of guidance within the mandatory provisions of the “Red Book”; the study therefore reports on a direction of travel rather than the current position. The implications for research are the requirement to enhance data capture and to seek ways to break down the barriers to more comprehensive integration of such data so that worth and market values may begin to converge. Practical implications The paper has practical implications for both the education of valuers which is proposed through the RenoValue project discussed in the paper and for the RICS in monitoring progress towards more specific integration within valuers’ calculations. Further, the paper identifies that clients and lenders have a key role to play through the instructions given to valuers. Social implications There is now widespread recognition that properties which are not resource efficient and which are not equipped to flex to changing occupier needs may not currently be “future proofed” in investment value terms and are likely to see value erosion over time. Further, buildings have a key role in terms of climate change policy. Whilst new buildings can be mandated to meet improved efficiency standards, the ways in which buildings owners can be encouraged to upgrade will be important moving forward. One way is through a value chain response. Originality/value The survey is the most comprehensive investigation of valuer’s practice in relation to sustainability and the assessment of market value and worth undertaken. This provides a unique insight into the effectiveness of professional guidance and enables an informed discussion as to appropriate ways to enhance guidance moving forward.

Complexities of operating in foreign property markets

Consequently, institutional investors such as insurance companies, banks, corporations and pension funds (the primary capital players in most investment environments today) are constantly seeking new real estate investment opportunities on a global investment market. Also, private investors increasingly recognize international real estate – in particular ‘indirect’ real estate investments, which are sometimes called property securities (in the US typically proxied by real estate investment trusts, REITs) – as an alternative investment option. For the majority of ‘high net worth individuals’ (HNWIs) – a term created to characterize those 7.3 million people with more than US

Nachhaltigkeit in der Wohnungswirtschaft

1 million in financial assets – ‘REITs emerged as a universally popular investment vehicle’ (Capgemini, 2003, p. 7).

Corporate Real Estate (II): Einfluss nachhaltigkeitsorientierter Determinanten auf den Immobilienwert

Die Auseinandersetzung mit der Nachhaltigkeitsthematik bzw. das Leisten, Beschreiben und Darstellen eines positiven Beitrages zu einer nachhaltigen Entwicklung ist in der Wohnungswirtschaft eine Querschnittsaufgabe. Diese durchdringt mehr und mehr alle Geschaftsprozesse und Entscheidungsablaufe. Zunehmend werden Nachhaltigkeitsaspekte in die Methoden, Instrumente und Berichtsformate integriert. Der nachstehende Abschnitt weist daher zu mehreren Teilthemen dieser Veroffentlichung Querbezuge auf.